EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

Using Federal Tax Incentives to Facilitate TVA Privatization

Using Federal Tax Incentives to Facilitate TVA Privatization

The U.S. Government is considering the privatization of the Tennessee Valley
Authority (TVA), the nation's largest public utility. President Franklin Delano
Roosevelt started the TVA 80 years ago because it was important for the nation
to provide power to the then rural South. Absent achieving a major reduction in
electricity power plant demand, the TVA is faced with 25 billion in capital
investments over the next 10 years to upgrade power generation facilities to
meet clean air standards, replace existing generation that must be retired and
expand generation to meet projected increased demand.1,2 Despite the
Southern location of the TVA, only 1 percent of TVA's electricity generation
comes from tax incentivized renewable energy generation like solar activities.
The Federal government and the TVA can use Federal energy tax incentives to
reduce unnecessary expenditures and facilitate the conversion from government
to privatization.

EPAct – Code Section 179D

Under Code Sec. 179D, as enacted by the Energy Policy Act of 2005 (EPAct),
building owners who make qualifying energy-reducing investments can obtain
immediate tax deductions of up to $1.80 per square foot.

If the building project doesn’t qualify for the maximum of $1.80 per
square foot immediate tax deduction, there are tax deductions of up to $0.60
per square foot for each of the three major building subsystems: Lighting,
HVAC, and the Building Envelope. The building envelope covers every part of the
building’s exterior perimeter that touches the outside world including
roof, walls, insulation, doors, windows and foundation.

Alternative Energy Tax Credits and Grants

The American Recovery and Reinvestment Act has established multiple 30% or
10% tax credits. These credits are available to building owners for a variety
of alternative energy measures and have varying credit termination dates. For
example, the 30% solar tax credit expires January 1st 2017, as does the 10%
Combined Heat and Power tax credit. In contrast, the 30% closed loop and open
loop biomass credit expires January 1st, 2014.

The TVA

The TVA operates in 7 states which includes all of Tennessee and include
Alabama, Mississippi, Kentucky, Georgia, Virginia, and North Carolina.
Tennessee, Kentucky, Georgia, Virginia and North Carolina have been
experiencing strong economic growth and over 9 million people now live in the
TVA utility-served area.

The Obama Budget and Privatization

The Obama budget includes the following fiscal savings opportunity:
"reducing or eliminating the federal government's role in programs such as the
TVA which have achieved their Federal objectives and no longer require federal
participation."5

TVA Business and Tax Planning

Utilities that aggressively encourage energy efficiency utilizing Section
179D tax incentives can measurably reduce demand.6 The TVA should
consider a strong authority wide rebate program for LED lighting and high
efficiency HVAC. With only a 1 percent alternative energy accomplishment solar
PV has a major growth opportunity. Many of the TVA states are home to large
warehouses 7,8,9,10 and major auto manufacturers with large flat
roofs suitable for solar. The TVA should consider programs that enable private
equity to access the large solar PV tax benefits while meeting the regions
energy policy needs. It makes no sense for the TVA area's rate payers to bear
the burden of large utility plant retrofits that may be able to be
eliminated.

Our Federal government has the important goal of reducing looming budget
deficits by privatizing Federal programs that are no longer necessary. By
supporting the use of its own Federal energy tax incentives the Federally
constituted TVA can facilitate this inevitable privatization.